Malaysian Economy Essay

The Malaysian economy is expected to strengthen further and projected to grow at a faster rate of 4.5% to 5.5% in 2013 supported by improving exports and strong domestic demand.

In the Economic Report 2012/2013 released by the Ministry of Finance (MoF) last Friday, it said the assumption was based on the global growth that will pick up especially during the second-half of 2013 (2H13). It said that it was also premised upon the expectation of an improvement in the resolution of a debt crisis in the euro-area and stronger growth in the economies of Malaysia’s major trading partners.

The Economic Report 2012/2013 was released in conjunction with the national Budget 2013 that was presented by the prime minister last Friday. It said that given that the domestic economy is expected to strengthen further in 2013; inflation is estimated to increase moderately mitigated by further capacity expansion in the economy. On the supply side, growth in 2013 is expected to be broad-based supported by expansion in all sectors of the economy.

Of significance, the external trade-related industries are envisaged to benefit from stronger global growth, particularly during the 2H13. It said that the services and manufacturing sectors are expected to contribute 4.2 percentage points to the gross domestic product growth.

MoF said that the prospects in the services sector are expected to remain upbeat in 2013, with the accelerated implementation with major initiatives under the National Key Result Areas and continued investment in the seven services subsectors under the National Key Economic Areas. It said that these initiatives are expected to drive the wholesale and retail trade, finance and insurance, and communication subsectors, which are expected to grow 6.8%, 5.2% and 8.2% (2012 :5.7%; 4.2%; 9.3%) respectively.

On the value-added of the manufacturing sector, MoF said that it is expected to grow 4.9%, (2012 :4.2%) with export oriented industries expected to benefit from the higher growth of global trade, while domestic oriented industries expand in line with better consumer sentiment and business confidence.

MoF said that the electrical and electronic (E&E) subsector is expected to grow further, driven by higher demand for electronic equipment and parts as well as semiconductors in line with recovery in advanced economies.

On the agricultural sector, MoF said that it is expected to grow 2.4% (2012:0.6%) following the recovery in the output of plantation commodities.

MoF said that the production of crude palm oil is envisaged to rebound 2.5% to 18.9 million tonnes (2012: -2.5%; 18.4 million tonnes) on account of expanded matured areas to 4.44 million hectares (2012: 4.38 million hectares).

On the mining sector, the report said that it is expected to expand 2.7% (2012: 1.5%) on account of higher production of crude oil and natural gas. “Production of crude oil is projected to increase 3.6% to 600,000 barrels per day (bpd) (2012: 1.6%; 579,000 bpd) due to higher regional demand,” said MoF. It added that several new oil fields are expected to start production in 2013, contributing to higher production of crude oil.

On the construction sector, MoF said that it is envisaged to expand strongly at 11.2% (2012: 15.5%) with all the subsectors registering steady growth. On the domestic demand, MoF said that it is expected to grow at 5.6% (2012: 9.4%) and will remain the main driver of growth in 2013 underpinned by strong private sector expenditure.

The report added that private consumption is projected to expand 5.7% (2012: 7%) on account of higher disposable income arising from better employment outlook, firm commodity prices and the wealth effect from the stable performance on the stock market following strong domestic economic activities.

On private investment, Malaysia is expected to post a strong growth of 13.3% in 2013 (2012: 11.7%) attributed to the ongoing implementation of the Economic Transformation Programme projects.

MoF said that public investment will continue to support growth and is expected to expand 4.2% in 2013 (2012: 15.9%) driven by higher capital outlays by the non-financial public enterprises (NFPE’s) and development expenditure by the federal government.

It said that capital of the NFPEs will focus on the upstream oil and gas, transport, communication and utility industries. It added that in line with the expansion in domestic economic activities, national income in current prices is expected to increase 7.8% in 2013. The report also said that gross national savings is expected to expand strongly by 11.1%, with the private sector accounting 72.3% of total savings.

On the balance of payments, MoF said that it is projected to remain favourable with current account continuing to record a higher surplus of RM71.9 billion or 7.3% of the gross national income.

It said that the surplus in the goods account is projected to expand RM126.5 billion. “In 2013, exports are estimated to grow 3.9% (2012: 2.4%) supported by higher commodity exports and improving global E&E demand.

The MoF said that inline with increased domestic activity as as to meet increased inputs for the manufacturing sector, imports are projected to grow at a faster rate of 5.2% (2012: 6.5%).

On the services account, the report said that it is expected to improve with a lower deficit of RM8.2 billion driven by large surplus in the travel account, following expectations higher tourist arrivals.

MoF said that other components in the services account are expected to remain a deficit.

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